Innovation Management

Innovation Management

THE MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE

Ternopil Ivan Puluj National Technical University

Innovation Management

У реалізації TEMPUS-SUCSID проекту були задіяні наступні ВНЗ

та установи:

The following HEI and organizations were involved in the

TEMPUS-SUCSID Project realization:

Університет Монпельє 2, Франція University Montpellier 2, France Університет Люм’єр Ліон 2, Франція University Lumiere Lyon 2, France Королівський технологічний інститут,

Швеція

Royal Institute of Technology, Sweden

Інститут менеджменту, Португалія Instituto Superior de Gestao, Portugal Технологічний університет Тампере,

Фінляндія

Tampere University of Technology, Finland

Бакінгемшірський Новий університет, Великобританія

Buckinghamshire New University, United Kingdom

Бізнес-інкубатор регіону Рон-Альп, Франція

Rhone-Alpes incubator network, France

Харківський національний економічний університет, Україна

Kharkiv National University of Economics, Ukraine

Харківський національний університет будівництва та архітектури, Україна

Kharkiv National University of Civil Engineering &Architecture, Ukraine Харківська національна академія міського

господарства, Україна

National Academy of Municipal Economy in Kharkiv, Ukraine

Тернопільський національний технічний університет імені Івана Пулюя, Україна

Ternopil Ivan Puluj National Technical University, Ukraine

Сумський державний університет, Україна Sumy State University, Ukraine Білоруський державний університет,

Білорусь

The Belarusian State University, Belarus

Білоруський національний технічний університет, Білорусь

Belarussian National Technical University, Belarus

Економічна академія Молдови, Республіка Молдова

Academy of Economic Studies of Moldova, Republic of Moldova

Комратський державний університет, Республіка Молдова

Comrat State University, Republic of Moldova

Міністерство освіти республіки Білорусь, Білорусь

Ministry of Education of the Republic of Belarus, Belarus

Міністерство освіти і науки України, Україна

Ministry of Education and Science of Ukraine, Ukraine

Міністерство освіти республіки Молдова, Республіка Молдова

Ministry of Education of the Republic of Moldova, Republic of Moldova

Асоціація «Інформаційні технології України», Україна

Association “Information Technologies of Ukraine”, Ukraine

Товариство з обмеженою

відповідальністю «Співдружність», Україна

Limited Liability Company “Spivdruzhnist”, Ukraine

Товариство з обмеженою

відповідальністю «BayView Innovations», Україна

Contents

MODULE І

Theme 1. THE SUBJECT AND ESSENCE OF INNOVATION MANAGEMENT

7

1.1. The importance of innovation….………... 8

1.2. Definition of innovation ………... 10

1.3. Study of innovation ………. 11

1.4. Basic concepts of innovation management ……….………. 13

1.5. Classification of innovations……….………. 16

Theme 2. THE INNOVATION PROCESS AND CHARACTERISTICS OF ITS MAIN STAGES 19 2.1. The innovation process ………....…………... 20

2.2. Main stages characteristics of new product life cycle ……… 24

Theme 3. METHODS OF SEARCHING FOR INNOVATIVE IDEAS 29 3.1.Classification and characteristics of methods for searching and generation of ideas ………... 30

3.1.1. Method of prototype improvement... 31

3.1.2. Brainstorming ………... 31

3.1.3. Synectics ……... 32

3.1.4. Elimination of the “dead lock” situations………... 33

3.1.5. The use of morphological maps... 34

Theme 4. THE ORGANIZATION OF CREATIVITY AS A PROCESS 36 4.1. Creative initiative as an objective process of innovation development system ... ₃₇

4.2. The emergence of creative initiatives ………... 38

4.3. Obstacles to the development of innovative initiatives ... 39

4.4. The rules for transferring creative initiatives………. 40

MODULE ІІ

Theme 5. FORMS OF INNOVATION ACTIVITIES AT THE ENTERPRISES

44 5.1. Introduction of new products and technologies, developed by

the company itself or by external bodies ……….. ₄₅

5.2. Intellectual property objects ………. 46 5.3. Specialized innovative enterprises, the main characteristics of

the innovative enterprise ……..………..……….. ₄₉

Theme 6. VARIOUS ORGANIZATIONAL FORMS OF INNOVATIVE ENTERPRISES AND THEIR ACTION STRATEGY

53 6.1. Classification of innovative enterprises ………. 54 6.2. Innovation strategy of enterprises ... 55 6.3. Strategy of Violents, Patients, Commutants, Explerents ………….. 58

Theme 7. STATE REGULATION OF INNOVATION ACTIVITIES 61 7.1. The role of the state and national ‘systems’ of innovation ………. 62 7.2. The notion of intellectual property. International scientific

and technological cooperation ………..……….. 63 7.3. Fostering innovation in ‘late-industrialising’ countries ……… 66

Theme 8. EVALUATING THE INNOVATIONS EFFICIENCY 68

8.1. Methods for evaluating the effectiveness of innovative

projects …………... 69

GLOSSARY 76

RECOMMENDED OR REQUIRED READING 83

Theme 1.

THE SUBJECT AND ESSENCE OF INNOVATION

MANAGEMENT

LESSON OUTLINE

LEARNING OBJECTIVES





 Study of innovation

 Basic concepts of innovation management

 Classification of innovations

After going through this lesson the students will be able to:

 recognise the importance of

innovation;

 explain the meaning and

nature of innovation management;

 provide an introduction to a

management approach to innovation;

 appreciate the complex

nature of the management of innovation within

organisations;

 describe the changing views

1.1. THE IMPORTANCE OF INNOVATION

Innovations are an important factor of success in a competition which is getting increasingly intense. Only those who are able to invent themselves over and over again and thus gain new competitive advantages will be able to survive in the long run. This is true for companies, organisations, teams, employees and countries.

“ ... not to innovate is to die” wrote Christopher Freeman (1982) in his famous study of the economics of innovation. Certainly companies that have established themselves as technical and market leaders have shown an ability to develop successful new products. In virtually every industry from aerospace to pharmaceuticals and from motor cars to computers, the dominant companies have demonstrated an ability to innovate (see Table 1.1).

Table 1.1 Market leaders

Industry Market leaders Innovative new products

Aerospace Airbus Ind; Boeing Passenger aircraft

Pharmaceuticals Pfizer;

GlaxoSmithKline

Impotence; ulcer treatment drug

Motor cars Toyota;

DaimlerChrysler; Ford

Car design and associated product developments Computers and

software development

Intel; IBM and Microsoft; SAP

Computer chip technology, computer hardware

improvements and software development

Indeed, the industrial revolution of the nineteenth century was fuelled by technological innovations (see Table 1.2).

Table 1.2 Nineteenth-century economic development fuelled by technological innovations

Innovation Innovator Date

Steam engine James Watt 1770–80

Iron boat Isambard Kingdom Brunel 1820–45

Locomotive George Stephenson 1829

Electromagnetic induction dynamo Michael Faraday 1830–40

Electric light bulb Thomas Edison and Joseph

Swan

Today there is more and more discussion about the necessity for innovation in companies, which is subject to various factors [34]. Few markets are stable and four main factors (see Figure 1.1) create the need for innovation: technological advances, changing customers, intensified competition and changing business environment.

Changing Business Environment

The need for Innovation Changing Customers and Needs Technological Advances Intensified Competition

Figure 1.1 Drivers of the Need for Innovation [18]

1. Technological Advances. There are numerous examples of new technologies having a major influence on business. For instance, nanotechnology is increasingly being used in products, such as “easy to clean” surfaces. New technologies often create new industries and both biotechnology and multimedia have created significant employment over the past decades. In addition, new applications of established technologies are constantly emerging. With the vast array of technological developments, even multinational companies that used to conduct all their own basic research cannot keep abreast of all of the developments, using internal resources alone. Organizations need to monitor the progress of both the technologies they currently use and also that of potential substitutes. Technology is equally important for service companies and R&D is increasingly having a major impact on how service companies do business.

automatic washing machine, which retails at around $150 in countries such as Brazil and China.

Changing customers also means that traditional market segments are disappearing or fragmenting and companies will need to adjust their product ranges accordingly – for example, car manufacturers now target over fifteen key segments in the US, as opposed to only five in the late 1960s. At the same time, there is the pressure for more environmentally acceptable, better value for money products and services. As basic needs are met, there is an additional challenge to innovation – determining customers’ hidden needs.

3. Intensified Competition. The third driver shown in Figure 1.1 is growing competition. Logistics costs have plummeted and, consequently, ‘safe, home markets’ are being threatened by foreign competition. Companies may also face competition from sources normally outside their industries.

4. Changing Business Environment. Business environments change and are always subject to change – sometimes gradual and sometimes radical.

Gradually markets have become more open as the market economy has been embraced by most governments. Many companies have focused on cost cutting. A gradual reduction in the resources required for key business processes has been achieved. A continued focus on efficiency gains will bring only diminishing returns and cost-reduction myopia needs to be replaced by a focus on increasing revenues and profits through new products and services.

Economic cycles have a radical impact. Downturns drive many companies to cut their investments in innovation but the winners which emerge have continued to invest.

1.2. DEFINITION OF INNOVATION

There are many misunderstandings about what innovation, in a business context, truly is. Innovation should not be restricted to:

 Big ground-breaking ideas or technological leaps forward.

 Creative jumps of the imagination which cannot be planned or prepared for.

 The R&D department or the “creative types” in marketing.  Creativity “workshops”.

 Product based companies.

innovation management – typically ideas generation – although there are other aspects of innovation management that are equally important.

There are different definitions of the term “Innovation”:

 a new idea, for others it means an invention (a materialized new idea);  a new product (a developed invention);

 the act of creating a new product or process;  to create a new business.

Innovation is the application of better solutions that meet new requirements, inarticulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as consequence, new that “breaks in to” the market or into society [35].

Innovations result from ideas, if they are implemented in new products, services and processes, which find real usage and thus penetrate the market. Commercial success in the future will therefore depend mainly on the companies’ abilities to create new products, ideas and processes or take up innovations quickly.

Innovation = ideas + new products/services + market implementation Innovations do not always have to be completely new ideas. The term innovation rather means the implementation of something new and results in a noticeable improvement for the user. They are characterized by a special characteristic, clear originality and a noticeable user benefit. Innovations are as a result qualitative new products, services, processes, structures, markets and cultures [34]. Innovation is an opportunity for something new, different. It is always based on change. Innovators do not view any change as a threat but as an opportunity.

1.3. STUDY OF INNOVATION

Innovation has been a topic for discussion and debate for hundreds of years. Nineteenth-century economic historians noticed that the acceleration in economic growth was the result of technological progress.

that economic development does not happen in any regular manner, but seemed to occur in “bursts” or waves of activity, thereby indicating the important influence of external factors on economic development.

This macro view of innovation as cyclical can be traced back to the mid-nineteenth century. It was Marx who first suggested that innovations could be associated with waves of economic growth. Since then others such as Joseph Schumpeter (1883-1950, was an Austrian American economist and political scientist), Nikolai Kondratiev (1892-1938, was a Russian economist, he is best known for proposing the theory that called “Kondratiev waves”), James Utterback (professor at Massachusetts Institute of Technology, Sloan) have argued the long-wave theory of innovation.

After the Second World War economists began to take an even greater interest in the causes of economic growth. One of the most important influences on innovation seemed to be industrial research and development. After all, during the war, military research and development (R&D) had produced significant technological improvements and innovations, including radar, aerospace and new weapons.

There was a need to understand how science and technology affected the economic system. A series of studies of innovation were undertaken in the 1950s which concentrated on the internal characteristics of the innovation process within the economy. A feature of these studies was that they adopted a cross-discipline approach, incorporating economics, organisational behaviour and business and management.

In particular, these studies realised that firms behaved. This led to the development of a new theoretical framework that tried to understand why some firms appeared to be more successful than others. The firm and how it used its resources was as the key influence on innovation.

Neo-classical economics is a theory of economic growth that explains the rate of technological change influences the rate of economic growth, but economic growth does not influence technological change. Rather, technological change is determined by chance. Also, neo-classical economic theory tends to concentrate on industry or economy-wide performance. It tends to ignore differences among firms in the same line of business.

Besides that, the activities that take place within the firm that enable one firm seemingly to perform better than another, given the same economic and market conditions, has been the focus of much research effort since the 1960s.

The Schumpeterian view sees firms as different – it is the way a firm manages its resources over time and develops capabilities that influences its innovation performance.

performance as a hundred years ago. It was Schumpeter who argued that modern firms equipped with R&D laboratories have become the central innovative actors. This theory has a significant impact on the study of business and management today. Success in the future, as in the past, will surely lie in the ability to acquire and utilise knowledge and apply this to the development of new products. Uncovering how to do this remains one of today’s most pressing management problems.

The importance of uncovering and satisfying the needs of customers is the important role played by marketing and these activities feed into the new product development process. Recent studies suggest that listening to your customer may actually stifle technological innovation and be detrimental to long-term business success.

In previous centuries it was easier in many ways to mobilise the resources necessary to develop and commercialise a product, largely because the resources required were minimal. Today, however, the resources required, in terms of knowledge, skills, money and market experience, mean that significant innovations are synonymous with organisations. It is important to note that more recent innovations and scientific developments (such as significant discoveries like cell phones or computer software and hardware developments) are associated with organisations rather than individuals (see presentation “Top-30 Innovations”).

Hence, today’s innovations are associated with groups of people or companies. Innovation is invariably a team game.

1.4. BASIC CONCEPTS OF INNOVATION MANAGEMENT

Now is considered that there are 5 innovation management concepts as being important for the years ahead [25]:

1. Customer-based innovation. Customer-based innovation’ is all about finding new and more profound ways to engage with customers and develop deeper relationships with them. It based on:

 Total customer experience driven by a desire to build a deeper relationship with the customer.

design and on emotional connection, with approaches used in the luxury and fashion markets being increasingly adopted in more traditional sectors. As one of the world’s leading designers said at one conference: “Apple is a community and an ethos, of which the products are merely souvenirs”. Apple is perhaps the most visible exponent of design as differentiator, but there is considerable work going on in leading research centers, in the automotive industry, and in software development to understand how to make an emotional connection with the customer through design of products, services and experiences, and how to build community, loyalty and advocacy.

 Social networking: The third converging trend is closely linked, i.e. the use of social networks to underpin companies’ propositions and relationships with their customers. Software, hardware and media companies such as IBM, Sun and Microsoft have already well-established user-led innovation processes.

2. Proactive business model innovation. A business model defines how to create and capture value within a value chain, considering both operations and strategy. Business model innovation as a concept is certainly nothing new, but there is still much to be done to develop a convincing innovation management approach that is sufficiently systematic and repeatable to generate new, innovative business models.

There are three key trends in successful business model innovation in the future:

 Deliver “thick value”: When companies deliver goods and services that truly leave the world better off, that’s “thick value”. That means creating real economic value; not simply capturing it from customers or suppliers, but genuinely making everyone better off.

Today business still often focuses on the creation of “thin value”, i.e. purely profit-driven transactions between the organization and its stakeholders, as opposed to “thick value”, which considers more lasting stakeholder value, for example increasing the resilience of stakeholders in the face of global societal and economic pressures such as climate change, demographics or energy security.

 More market adaptation: There is an important need for companies to find better ways to generate innovative business models proactively to meet the needs of new markets, or to respond to new developing world competitors.

3. Frugal Innovation. Frugal Innovation is about originating and developing innovations in lower-income, emerging markets, taking the needs of poor consumers as a starting point, then transferring, adapting, applying and distributing them in developed markets. This is the opposite of the traditional innovation approach, which has been to develop innovations in the higher value “knowledge economies” of the developed world, to use the emerging markets as a low-cost manufacturing resource, and sometimes to strip the product or service of unnecessary cost and functionality to enable it to compete in the emerging markets.

Frugal innovation brings about a rethinking of the nature of innovation. Instead of “more” it is often striving for “less”, using clever technology to create masterpieces of simplification in mobile phones, computers, cars and financial services. Frugal innovation clearly is not just about innovating products, often changes in the whole supply chain are involved.

4. High Speed/Low Risk Innovation. One aspect that is set to become increasingly critical is the importance of getting to market not just fast, but also accurately and without flaws. Due to the rise in global brands and the arrival of vivid, uncontrolled, ubiquitous mass communication, there is the potential for immense destruction of shareholder value from any flaw in product or service. So that is expected to see further development of approaches and tools to drive fast, de-risked product and service innovation. For instance:

 Gradual product rollouts (It is expected to see less dramatic big launches and more of a continuing roll-out when new products and services are released to their markets. The approach reduces risk both for the manufacturer and the user and will become crucial as systems become ever more complex and inter-related).

 Global 24/7 product/service development (Global teams with virtual organizations will allow 24/7 development in pursuit of speed. More importantly they will allow a wider range of cultures and perspectives to be brought to bear in product creation).

The following aspects of Integrated Innovation as being important for the future:  Systematic non-NPD innovation: This means greater and more consistent application of formal innovation tools and approaches to improve the effectiveness of proactive innovation in non-NPD areas such as management processes, manufacturing operations, business models, supply chain and sustainability. This will also include greater application of innovation management tools for cost reduction and competitiveness improvement.

 Radical/disruptive innovation: There will be a need for increasing proficiency and effectiveness in applying techniques to focus especially on radical innovation and new growth opportunities in adjacent or completely new business areas.

 Embedded innovation process ownership: They expect to see ownership of the innovation process shifting increasingly outside the Technology and R&D functions, ultimately becoming fully embedded in other business functions.

 Innovation integral to business strategy: Many companies already claim innovation as being integral to business strategy, but struggle to explain exactly how this happens – more post-event justification than reality. As innovation tools, including especially radical innovation tools, become more embedded throughout the organization, leading companies will become much better at applying them more purposefully and effectively in a corporate strategy context.

1.5. CLASSIFICATION OF INNOVATIONS

Table 1.3 A classification of innovations Classification’s features Type of innovations Product innovation Process innovation Management innovation Subject matter of innovations Commercial/marketing innovation Production innovation Commercial/marketing innovation Social innovation Ecological innovation Field of operation (activity) Legal innovation Radical innovation Incremental innovation Degree of novelty Systemic innovations New for enterprise New for branch New for country Scale of novelty World novelty Producer Consumer Addressee innovation Society Product innovation Process innovation Degree of physical tangibility

Objects of intellectual property

Causes of occurrence Strategy, which is prospective in nature and serves to ensure the competitiveness of the goods or services of the enterprise in the future

Reactive, which arises as a reaction to the actions of competitors and aimed at improving the competitiveness of the goods or services

Scientific and technological effect Economic effect

Social effect Kind resulting effect

Ecological effect

Table 1.4 A typology of innovations

Type of innovation Example

Product innovation The development of a new or improved product Process innovation The development of a new manufacturing process Organisational

innovation

A new internal communication system; introduction of a new accounting procedure

Management innovation

TQM (total quality management) systems; BPR (business process re-engineering); introduction of SAPR3 (SAP is a German software firm and R3 is an Enterprise Resource Planning (ERP) product.) Production innovation Quality circles; just-in-time (JIT) manufacturing system; new

Commercial/marketing innovation

New financing arrangements; new sales approach, e.g. direct marketing

Service innovation Internet-based financial services

Most scientists believe that the greatest practical importance has the classification of innovations for subject matter and the level of innovation

novelty.

Comparing the various definitions of innovation, it can be seen that there are several common elements what is changed (such as product or process changes); how much is changed (whether it is completely new or only perceived as such); the source of the change (sometimes technology); the influence of the change (for example, its social or commercial value).

DISCUSSION QUESTIONS

1. Many innovations today are associated with companies as opposed to

individuals. Why is this, and what does it tell us?

2. What is wrong with the popular view of innovation in which eccentric

scientists develop new products?

3. Why do so many new products fail?

4. Explain how technology differs from science, yet still does not equal

innovation.

Theme 2.

THE INNOVATION PROCESS AND CHARACTERISTICS

OF ITS MAIN STAGES

LESSON OUTLINE

LEARNING OBJECTIVES





After going through this lesson the students will be able to:

 recognise the role of key

individuals within the

process;

 understand the main stages

of new product life cycle; and



2.1. THE INNOVATION PROCESS

The innovation process consisting of the sub processes input, project management and implementation. Organisational factors embrace the main field consist of strategy, corporate culture, human resources, budget and cooperation. These tell us if the environment is also suited for promoting innovations. To put it another way the whole process from idea to the implementation of new products/services to the market is pictured.

Figure 2.1 Innovation Circle in a narrower sense

 INPUT: The following questions will be answered: Where do the ideas come from? How can you act actively and systematically in this early innovation phase?

The starting point for successful new products and services are initially ideas, which can be derived from various company-internal and external sources. Finding those ideas can be significantly supported by different organisational and methodological measures.

Technological advancements and market needs are some of the significant forces fuelling the introduction of products and services in a wide range of business sectors. Many product and service providers have utilized the so-called

technology-push and market-pull, the simple linear views of innovation which

 The term “Technology Push”, refers to advances in technology and the way in which these are introduced to the public / consumers, in the form of commercial products. In this model, research and development in new technology drives the development of new products. The technology push models starts with a technological development.

A good example is touch screen technology. The developments in electronic engineering have enabled smaller, smarter electronic components to be fitted into everyday products such as the mobile phone, personal hi-fi and cameras.

 The term “Market Pull”, refers to the need/requirement for a new product or a solution to a problem, which comes from the market place. The need is identified by potential customers or market research. A product or a range of products are developed, to solve the original need. Market pull sometimes starts with potential customers asking for improvements to existing products.

on market needs. Market pull eventually led to the development of digital cameras, once miniature digital storage, processing power and improved battery performance was available. Market pull ensured that photo editing software also developed, in parallel with the development of digital camera technology.

Market pull does not always work. Sometimes the market “calls” for a innovative new product, but the technology does not exist to support its development / manufacture. For example, electric cars are becoming more popular and the commuter market place, is open to the development of an environmentally friendly electric motor bike. A motorbike that can match the performance of petrol driven motor bikes. However, current electric motor and battery technology means this is not possible. Eventually, market pull will influence investment in research and development, ensuring the continued evolution of electric motorbikes.

 INNOVATION MANAGEMENT: How systematically should the innovation process be organized?

The goal of innovation management is the systematic support of the whole innovation process from the generation of ideas to the implementation of new products or services on the market.

The scope of duties of innovation management includes:

 Compilation and evaluation of innovative developments within and outside of the company.

 Development and maintenance of the company-internal innovation potential

 Acquisition of company-external innovations and their implementation in the company

 Planning, supervision, implementation and controlling of the company’s innovation activities

 Determination of the time for innovation to enter the market.

 Planning and realisation of possibilities to protect innovative developments (patents, licensing).

 IMPLEMENTATION OR REALIZATION: How can or should new products be introduced to the market? Accompanied by a controlling of the whole process.

Innovation controlling signifies all activities for the planning and supervision of innovation activities with the goal to ensure success:

 Efficiency: prevention of economic inefficiency in regard to time and costs  Effectiveness: reaching of goals.

The following potential hurdles may occur for the market implementation of innovative products:

 Complexity: Highly complex products are hard to convey to the customers.

Remedy:

- Lay special care on professional communication, if needed include external experts.

- Argue in such a way that the customer sees a relation between his problems and the product.

 Novelty of the problem solution: Products that use new technology normally have a high need of explanation. You should be prepared for questions regarding process safety, quality and integration ability.

Remedy: Discuss all possible objections to the product in advance.

 Product positioning: Customers must see a reward for changing to the new product. Especially if the new product is more expensive than existing products, the advantage must be clearly recognizable.

Remedy: Wear “customer glasses” when positioning the product.

 Social commitments and business history: A product’s performance advantage is only one parameter for a buying decision. This means that even new and better products may not guide fixed customer relations into new ways without further ado.

Remedy: Assure the fulfilment of demands.

 Access to and dependence from distribution channels: Due to an increasing concentration of companies access to the large distribution channels gets increasingly decisive.

 Regulations and admission procedures: Products interesting in regard to the market or its technology may still fail because of legal and social frameworks.

Remedy: Take into consideration legal regulations, admission procedures and customer specific standards as an important framework for the marketing of products.

2.2. MAIN STAGES CHARACTERISTICS OF NEW PRODUCT LIFE CYCLE

Ideally the aim of every innovation process is to build up a new successful business with products that can successively be transformed into standard products and sold on one or more geographical markets. Figure 2.1 shows in principle the situation from the birth of a new product – i.e. from when new discoveries and/or new product ideas have emerged – to when the product is removed from production and sales.

1. Analysis of correspondence between internal and external development opportunities. To do this market opportunities and threats should be compared with the strengths and weaknesses of the company. On this basis we can identify how the present and prospective directions and activities of the company correspond the conditions and the situation on the market. As a result, activities which should be curtailed and which are worth developing could be determined. Assessment of correspondence of company’ internal and external development opportunities generated by the market can be accomplished using SWOT-analysis.

2. Innovative ideas generation. The idea is a general concept of the product that can be offered on the market.

The main sources of innovative ideas are:  analysis of consumer needs;

 sales staff and dealers of the company;

 analysis of developments in science and technology;

 development of ideas by company’s own scientific and technical personnel;

 analysis of competitors activities including analysis of their promising developments;

 an analysis of development trends in the technological, economic, social, political, cultural, legal, ecological, demographic and other components of management environment. T he de ve lopm ent of a ne w pr oduc t con ce pt and i ts ve ri fi ca ti on

The beginning of next innovation cycle Ana lys is of c or re sponde n ce be tw ee n int er n al and ext er na l d eve lopm ent oppor tuni ti es Innova ti ve i de as g ene ra ti on S el ec ti on of a c ce pt abl e inno va ti ve i de as M ar ke t ana lys is a nd de v el opm ent of m ar ke ti ng st ra te gi es As se ss m ent of t he pos si bi li ti es of t he m ar ke ti ng st ra te gy obj ec ti ve s ac hi eve m ent Ne w pr oduc t de ve lopm ent T es ti ng of i nnova ti on in m ar ke t envi ronm ent T he de pl oym ent of c om m er ci al i nn ova ti ons pr o duc ti on Int r o duc ti o n to the M a rke t G r o w th o f sa le s Maturity Market exit Sales volume Profit Life cycle (Тl.c.) Innovation cycle (Тi) T im e P ro fi t, m o ne ta ry uni ts Sales volume, natural units

Figure 2.2 The Innovational and life cycles of the product innovation There are many methods for generating the innovative ideas (intuitive and ordered). The most popular among the latter are: improving the prototype, brainstorming, synectics, elimination of deadlocks, morphological maps. Any criticism of ideas is prohibited at this stage, since the purpose of the stage is to generate their greatest possible number.

3. The selection of innovative ideas. At this stage most appropriate ideas for a particular company should be chosen from the variety of new ideas.

The verification may be performed on the basis of:

 conformity assessment of the innovative ideas that were accepted appropriate in similar situations;

 comparison of innovative ideas according to the list of criteria and indicators and their optimal choice.

Preliminary assessment of innovative ideas involves obtaining answers to the following questions:

 the probability of existence of a future market for innovation;

 is there a technical and economic feasibility of development, production and promotion of innovations to the market;

 whether the innovation is profitable and how it will affect the enterprise? Such evaluation is often performed using the expert method, since elements of uncertainty are very influential at this stage due to an inaccurate, incomplete and conflicting information.

Note: In Ukraine the percentage of the implemented ideas does not exceed 20 %

of their whole number. For comparison, in Japan it is 68 %, USA – 52 %, Sweden – 45 %, Poland – 30%. Combined with low innovation activity of domestic producers this indicates going away from the accelerating economic prospects.

4. Development of the innovative product concept and its verification (concept is considered as innovation idea easily understandable for consumers). Typically, the testing of innovation plan (a new product or service) is carried out by questioning of users and analysis of the results.

Herewith the idea of the product should be considered at three levels, where each subsequent one describes a higher degree of specific innovations, and therefore the degree of elaboration and consumer appeal (see Figure 2.3).

Goods with additional services: pre and after sales service,

consumer stimulation, guarantees, spares, additional accessories to expand the scope of product use, etc.

Goods in real implementation: the name, the

expected technical and economic characteristics, design, packaging, etc

Product according to the initial concept: main new product benefits for

consumers and producers (ideally for all innovation process subjects)

L ev e l o f p ro d u ct c o n su m e r a tt ra ct iv en e ss

Degree of product concept elaboration

5. Developing a marketing strategy to promote innovation to the market. It involves a serious research and leads to marketing strategy development and promotion the innovation to the market. The main tool for this analysis is segmentation.

In general, the marketing strategy includes: a strategy of formation and development of target market, product strategy, pricing strategy, products promotion strategy (including sales and goods movement), strategy of demand creation and stimulation.

6. Evaluation of the economic feasibility of the enterprise goals presented in the marketing program. Evaluation is performed according to the following criteria:

 intellectual and technological capabilities of innovations implementation in the new product that meets the needs and demands of consumers;

 possibility of implementing an innovative idea into a commercial product;  market opportunities of promoting an innovation on the market and

bringing it to consumers;

 innovative project resource supply: information, raw materials, finance, etc. (existing and needed);

 sources of investment in R&D and development activities, testing, pre-production, promotion, distribution and marketing;

 risk degree and the possibility of its prevention, reduction or compensation;

 expenditures for the design, production and promotion of innovation on the market;

 profitability.

7. Development of design and technological innovation documentation, manufacturing of prototypes and testing.

At this stage a prototype is produced and if necessary is tested in laboratory with the following documentation specification. Based on the laboratory tests results, operating documentation will be specified (please, see above). When designing innovations to assess the possibility of its concept implementation to the new product, one can use the recommendations of J. Jones. It should be noted that computer-aided design (CAD) tools are widely used to develop the design and technological documentation including software and computer systems.

8. Testing of innovation in market conditions.

Recently, computer modeling is used for testing the product innovations. In particular this is virtual shops where product modifications are being sold, using different versions of its design and packaging, shops showcase decoration, etc. 9. Deployment of commercial innovations production in the amount specified in the marketing program.

At this stage an existing market opportunities and threats, emergence of new ones and transformation of one into the other (transition of the opportunities into threats and backwards) should be constantly monitored.

Despite a large number of stages of the innovation process, they are certainly necessary. The cost of works at each subsequent stage is nonlinearly increase compared to the previous stage therefore the thorough elaboration of possible solutions can reduce the probability of possible adverse consequences (see Table 2.1) [19]. Finally it should be noted that only 1 or 2 innovative ideas out of 100 reach the commercialization stage, while those which remained, have the probability of market success of 25-50%.

Table 2.1 Shares of success and failure on the stages of the innovation process

Stages Indicators Ideas generation and selection Business analysis Product development and manufacturing Product testing Commercial production

The share of expenditures at the stages of typical completed project, %

7,3 3,7 22,7 18,6 42,7

Share of expenditures on product innovation both successful and not, %

14,7 6,1 36,9 16,7 25,6

Successful projects, % 34,7 45,2 52,1 58,8 66,3

Unsuccessful projects, % 65,3 54,8 47,9 41,2 33,7

DISCUSSION QUESTIONS

1. Explain how organisational heritage influences the innovation process.

2. Explain the key individual roles within the innovation process and the

activities they perform.

Theme 3.

METHODS OF SEARCHING FOR INNOVATIVE IDEAS

LESSON OUTLINE

LEARNING OBJECTIVES



characteristics of methods for searching and generation of ideas



 Brainstorming  Synectics

 Elimination of the “dead lock” situations

 The use of morphological maps

After going through this lesson the students will be able to:

 understand difference

between various methods to

generate and validate ideas of innovation; and

 recognise the need to use

methods to generate

3.1. CLASSIFICATION AND CHARACTERISTICS OF METHODS FOR SEARCHING AND GENERATION OF IDEAS

Comparative analysis of formal methods to generate and validate ideas of innovation and recommendations for their use are presented in Table. 3.1.

Table 3.1 Comparative characteristics of methods for generation and selection of innovative ideas

The name and nature of the method

Field of application Benefits Disadvantages

Prototype

improvement: identify prototype (the best model on the market) drawbacks and finding ways to improve it

Improving existing products: improving their design and functional characteristics, economic

characteristics, etc.

The plain inheritance of the known product (if the prototype is in demand then its modification will be too)

The product is not always could be improved; minor improvements may lead to loss of competitiveness Brainstorming: group generation of ideas to solve the problem assuming prohibition of ideas criticism, followed by their assessment

Quick generation of as great number of ideas as possible to solve formulated problems. Speed; increased chance to find an acceptable solution; multidimensional problem analysis.

The quality of ideas is independent of the duration of its

search;

the results require further research Synectics: orientation of group of professionals spontaneous intellect functioning (with various types of analogies) for the analysis and solution of the given problem

Search of general (fundamental) solution of the given problem Allows to overcome developers preconceptions and provides innovative ways to solve problems Requires an experienced and strong leader, careful selection of experts and their prior training

Elimination of the dead-lock situations: the search for new solutions if traditional ones are not effective.

Solving complex problems that cannot be solved by traditional methods in traditional search areas (sectors). Allows to solve problems in a situation where there is no acceptable solution Knowledge, experience and traditions of

developers are below the level of search areas.

Morphological maps: expansion of problem solution search area

Finding solutions for new problems

Allows to quickly generate a number of possible solutions and choose the most appropriate one.

3.1.1. METHOD OF PROTOTYPE IMPROVEMENT

The main provisions of the method we will consider using the following example.

Example. Estimates for groups of indicators for competing products (manufacturers of centered

pumps) are shown in Table 3.2.

Table 3.2 Comprehensive indexes of competing pumps Index groups

Producer

Qualitative Technical Service Economical Integral (К)

“Nasosenergomash” 0,1500 0,1823 0,2500 0,2169 0,7992

“Livgidromash” 0,0601 0,1687 0,0500 0,4000 0,6788

“Uralgidromash 0,0844 0,1811 0,0291 0,3103 0,6049

“Kaluga Turbine Plant” 0,0828 0,1801 0,0459 0,2804 0,5892

Table 3.2 analysis shows that the pumps produced by "Nasosenergomash" which are better according to the integral factor, can be taken as the prototype. However, these pumps, surpassing competitors' products by groups of qualitative, technical and service indicators (although there is a backlog on some indicators within groups) significantly lose to them on the group of economic indicators. Therefore development of new improved pump system should take into account this fact. This requires concentration of efforts, especially in order to improve economic performance such as prices and energy consumption per volume of fluid unit. The first one requires finding reserves to reduce the first cost, the second shows the need of equipping pump with less powerful engine. As for technical performance it is required to reduce the size and weight of pumps.

3.1.2. BRAINSTORMING

The task to offer the idea of innovation, which can be designed, manufactured and introduced to market by a particular company is set for a selected group (several groups) of professionals (usually the group includes 5-6 people or more). At the same time any criticism of ideas is prohibited even "wild" ideas accepted for consideration.

interesting ideas that can be implemented. J. Jones states that a group of 6 people can generate up to 150 ideas during half an hour.

After recording the ideas their authors are invited to read the records one by one. Members of the working group listen and record their thoughts. Observed ideas and commentaries will then be analyzed and grouped and in future they serve as a basis for finding the best solution.

3.1.3. SYNECTICS

This method involves search (generation) of the idea which can solve the problem (the idea of innovation) in several stages. Let us look on them in detail. 1. To chose a group of experts that will generate the idea of innovation. This group should include invited specialists in different areas of expertise and employees of an innovative enterprise (they have to represent different structural units).

2. Provide this unit with an opportunity to acquire practical skills in the use of analogies to guide the spontaneous brain activity to solve a problem or task, such as the development of innovation.

Often the following types of analogies should be considered:

 direct (real): for example, from biological systems: modern submarines sheathing which reduces the friction of the water and the noise made by analogy with the skin of dolphins and other animals living in the water;  subjective (corporal): for example, when a developer is trying to imagine

himself as a certain product or unit, imagine what it would feel like been, for example, the wing of the aircraft, which forces would effect him in this case, etc.;

 symbolic (abstract), when the characteristics of certain object or phenomenon are equaled with the characteristics of the other one. In particular, a decision tree, bolt head, the noise of the ship or aircraft, etc., sound absorption, radiation trapping;

 fantastic (unrealistic) when things or phenomena are imagined as those required by designer, developer or researcher, although they can not be such as those inherently.

3. To set a task to a new developers group which they have to complete (to find a solution to a particular problem). Mostly synectics is used to develop new products and solve problems that arise meanwhile.

3.1.4. ELIMINATION OF THE “DEAD LOCK” SITUATIONS

This method involves the generation of innovation ideas in the following ways: 1. Using the transformation rules that can be applied to poor decisions in the field of traditional search. The following transformation are acceptable: use in other way, adaptation, modification, strengthening, weakening, replacement, rebuilding, inversion, unionation.

Example. In the mid 90s many universities in Ukraine faced the problem of survival, because

governmental funding was clearly insufficient. To overcome the crisis, a practice of preparing extramural students on contract (paid) basis was introduced. However difficult financial position of students majority prevented them from coming to the university to take exams and paying for hotel accommodation. These charges had to be paid in addition to their official education costs.

To solve the problem inversion was used, which can be interpreted as situation reverse, i.e. the replacement of students visits to the university by university teachers visits to students. Further study of the ideas showed that the problem could be solved by creating educational and counseling centers at schools, colleges, technical schools, for example, in regional centers. A small rents allowed to set up a installation and exam sessions and hence studying directly in the cities (and other locations) where the students lived just by slightly increasing tuition fees (10-15 %). Thus, inversion of the situation allowed to solve the problem.

The basic solutions supposed to be transformed can be obtained artificially by advanced introduction of any clearly unacceptable solution.

2. Finding new relations between the parts of the previous improper decision. Alternatively it is possible to examine the associations that arise while pair-wise comparison of the mutual relations of certain elements of a product or system.

Example. Improvement of a table lamp design can be accompanied by an analysis of the mutual

relations for the following pairs: stand – rack, rack – lighting element, lighting element – lamp shade, switch – rack; switch – stand, etc. In this case various options for the relationship of two elements will be analyzed, such as setting one onto/inside another, replacing one another, etc.

3. Project situation revaluation (reassessment). Developer (designer) who is “deadlocked”, records complications, and then replaces every word (or phrase) with synonymous ones.

Example. The designer describes the complications: "Welding product casing can lead to

3.1.5. THE USE OF MORPHOLOGICAL MAPS

Let us look at the example of the generation of innovative ideas for room heating, which would be cheap and less expensive in exploitation than existing ones, easy to use and environmentally friendly. Moreover it also have to be taken into account that Ukraine has limited oil and gas reserves but some surplus in electricity production.

Generation of innovation idea will be conducted according to the following enlarged algorithm:

 Identify the functions which an acceptable product should be able to perform.

 Show a wide range of elementary solutions on a chart i.e. alternative means of implementing each function.

 Select one acceptable elementary solution for each function.

Below is the example of using this algorithm to solve the problem (Table 3.3).

Table 3.3 Morphological map

Intermediate solutions The main parameters 1 2 3 4 5 Air temperature warm air from the central source convector in the room convector radiator in the room source of regulated thermal radiation other Air circulation natural circulation forced circulation natural convection

forced convection other Air humidity unregulated humidifier

-vaporizer other Heating element High temperature electric heater High temperature electric heater with an open flame panels with low temperature fluid circulation low-temperature heater Surfaces heated by convection Temperature gradient due to the placing of the heating element due to the placing of the heating element other

Heating mode constant throughout the day periodical turning on during the day

daytime at night, with the periodic turning on in daytime, to maintain temperature control other

Heat carrier water air oil other Energy

source

Dark shading shows the traditional centralized water heating system. Lighter shading shows innovative option. It involves the use of heating element that heats using electricity during nighttime when it is cheap. In this case the heat is accumulated in the oil cooler and is used during the daytime.

DISCUSSION QUESTIONS

1. What are the advantages of prototype improvement method?

2. What is the difference between brainstorming method and synectics?

3. Define the ways of the innovation ideas generation under elimination of the dead-lock situations method.

Theme 4.

THE ORGANIZATION OF CREATIVITY AS A PROCESS

LESSON OUTLINE

LEARNING OBJECTIVES



objective process of innovation development system



 Obstacles to the development of innovative initiatives

 The rules for transferring creative initiatives

 Organization of inventive and innovative work at the

enterprises

After going through this lesson the students will be able to:

 understand the nature, scope and utility of creativity;

 explain the dilemma facing all

organisations concerning the need for creativity and

stability;

 provide an understanding of a

number of rules for

transferring creative initiatives; and



4.1. CREATIVE INITIATIVE AS AN OBJECTIVE PROCESS OF INNOVATION DEVELOPMENT SYSTEM

Creating an environment that fosters creativity at the work place is a crucial part of the innovation management. Such an environment contributes to generation and creation of innovative ideas. The creative environment requires support of the so-called innovative climate that follows a special corporate culture on the microlevel and is also a part of micro-environment in a company. Innovative climate is defined as the working conditions established during a certain period of time that contribute to fostering the creativity environment, the changes and innovations.

Organizational culture of such a team is an integral characteristic that includes the system of values, behavioral modes of employees, management type, the features of control system, assessment modes and motivation system.

Creativity inspires and leads to emergence of innovations. Creative people have the following distinct features:

 Flexible thinking;  Nontrivial approach;  Curiosity;

 Insistence;

 Goal-oriented in problem solving.

Individuals as well as successful companies or project teams might have the feature of creativity competence. The key elements of creative companies are:

 Flexibility of organizational structures;  Well-coordinated teamwork;

 Loosen allocation of responsibilities;  Employees’ substitution;

 Teamwork in generation of goals and problems.

Such companies do not criticize for the mistakes, since trials and errors contribute to the employees’ capability to constantly search for new ideas.

The common management principles of such companies include team-orientation or business-process. They lack rigid hierarchy and have fewer management levels in comparison to the typical organizational structure based on bureaucracy principles.

An initial stage of innovation process is the search for ideas. In order to enjoy fully the innovation potential, a company has to foster an environment, in which its members feel the support of the senior management for any new innovative ideas regardless their seemingly trivial or inadmissible nature.

Favorable innovation climate presumes the creation of the environment of trust. It also includes the process of identifying and overcoming of those factors that “block” creative efforts. Furthermore, it requires the cooperation in searching activities of staff members, the enlargement of innovators’ powers at the working place, the employment of organizational and psychological tools that help to generate new ideas.

An innovation-oriented company with the well-developed management culture always keep expanding the range of intellectual activities, encourage the active emergence of ideas, including those very diverse and uncommon. Therefore, the main task of the leader is to identify talented people, to foster conditions for their activity and to remove the impediments for creativity’s growth.

4.2. THE EMERGENCE OF CREATIVE INITIATIVES

An idea is the beginning of the innovative entrepreneurship. The driving forces for the emergence of innovative idea are the knowledge of staff members, personal or professional experience, insights, perspectives of employees and the capacities to implement all of those in reality.

The process of an innovative idea formation, which might lead to a business success, requires:

 Finding out the way of the utility creation that is valuable for consumers;  Creating the mix of particular features that ensures the emergence of a

given utility;

 Creating a unique formula that helps achieving the maximum profit. The examples of sources of innovative ideas include:

 Consumers as subjects of consumer studies;

 Researchers who are working on innovation or searching new materials; as well as a product’s features that have the potential of new products or services;

 Competitors as subjects of their own strategies, and activities related to consumer studies and created innovations;

 Sales forces, dealers, and other intermediators;

According to P. Drucker, the sources of opportunity that ultimately drive innovation are:

 The organization’s own unexpected event like successes, failures, or other external event;

 Incongruities, that is the discrepancies between the reality as it is and our perceptions (“the reality as it should be”);

 Process needs (they imply elimination of shortcomings);  Changes in industry and market structures;

 Changes in demographics;

 Changes in meaning, perception, or peoples’ values;  New knowledge, both academic and non-academic.

Business development involves not only the scheduled collective work of researchers and inventors engineers, but also the intuitive insights of individual co-workers. Creative ideas are not meant for planning or logic deduction from the previous practice, since their basis lays in the breakthrough logic. In the beginning, such ideas lack clarity, they are hard for description and validation, often seem weird and categorically unpractical. However, while implementing such odd ideas (either of their own or of external origin), the talented entrepreneurs actively change our world. The aggregated creativity energy of entrepreneurship is the key component for the development of world economics.

4.3. OBSTACLES TO THE DEVELOPMENT OF INNOVATIVE INITIATIVES

Managers play the key role in the emergence of innovative initiatives. They may either actively support the creation of innovations or explicitly as well as implicitly hamper innovation activity. The main problem, hampering the innovations, could consist of unsuitable or inappropriate management style. The reasons for limiting innovative initiatives include psychological and emotional factors, such as fear of being wrong, misunderstood, criticized, regarded as incompetent. They also include professional factors, such as competitiveness and related conflicts, lack of experience, over-categorical judgments, lack of alternative options, narrow knowledge. The perception factors, limiting the innovative initiative, include categorical and narrow thoughts, lack of adequate intellectual level. Finally, personal factors include ambition, sensitivity, idleness, arrogance, self-interest, and conservatism.

features could serve as an illustration of such inadequate techniques. The employees should have the room for mistakes in order to reveal their innovative potential.

In addition, the excessive bureaucracy of organizational structures hampers the innovative process to a large degree and prevent both the generation of ideas and introduction of innovations. This situation involves fear and constraints that discourage creativity.

Another problem for innovation is the manager’s conservatism. Manager does not see or is unwilling to see the innovative idea as feasible. As a result an idea lacks the support and further practical development. However the experience of successful companies proves that many brilliant ideas seem, at the first sight, unfeasible or inadmissible in that organization or even in the society.

Often the problem that is related to the lack of creativity includes the differences in the situation assessment between the employees and the senior management that lead to unfavorable perception of innovation. This might be explained by the fact that the company management possesses the important and valuable information which is not available for employees. Such a problem could be solved by building the efficient vertical communication networks.

The next problem is the lack of horizontal connections or their weak or inefficient coordination in the organization. Successful innovations require the experience engagement of several departments all together, whereas unsuccessful innovations are often the result of the weak cooperation. Therefore the big companies working on innovations actively involve the employees of different departments into the innovation process. The small innovation organizations solve this problem by modifying the team roles.

Many employees lack creativity in their work due to the permanent time issues related inadequate allocation of tasks or lack of time management. At the same time the senior management is often in a stress that leads them to grasp the very first idea and stop searching for new creative ideas. These and other problems could be addressed by the efficient innovation management.

4.4. THE RULES FOR TRANSFERRING CREATIVE INITIATIVES